The car loan market is still run-of-the-mill and it doesn’t feel good
Every month or so, sometimes even faster than that, there will be a new report on how long and crazy auto loans have become nowadays and, maybe because I’m an anxious person, these stories make me tick. A report released Thursday says yes, both big and long loans for large SUVs and trucks continue to rise.
Going through Reuters:
U.S. consumers borrowed more and longer in the first quarter of 2021 so they could drive more expensive trucks, crossovers and SUVs, according to a new study from Experian into auto credit market trends.
Over 56% of new vehicles funded in the first three months of 2021 were SUVs, and 17% were vans. The average amount financed for the purchase of a new vehicle rose to $ 35,392 in the first quarter from $ 33,833 a year earlier.
The share of new vehicle loans older than 72 months rose to just over 35% of the total, from just under 32% a year earlier.
Used vehicle loans have shown a similar trend with more borrowing on average over longer periods.
Seventy-two months equals six years, which means that more than a third of new car loans today are over six years old. This is probably because people are borrowing more – and that says the average is now $ 35,392 – they want their payments low, or if not low, they want their payments to fit into the amount they think a car payment should be. .
As a child of ‘90s, for me this figure is about $ 250, but, even on an 84 month loan at a 3% interest rate, a $ 35,392 car would cost more than $ 450 per month, according to Google’s calculator. This is apparently something a lot of people are willing to take on, which doesn’t seem optimal.
That said, the Experian report also contains two facts that might suggest that all is well in the short term, namely that the number of delinquent auto loans is declining and the average credit score of new and old car buyers. opportunity is on the rise. Nonetheless, since these long term loans are a relatively new phenomenon, I wonder what will happen towards the end, when buyers still pay off a big loan on a car that is now over six years old and can -be inoperative.
Our resident automotive expert Tom McParland tells me that such a long loan could be able makes sense if you are investing a lot of money and what you are buying is reliable and will have good resale value. I’m sure that’s not the case for all of them, and they’re the ones that stress me out.